Q3 2025 Conference Call
The share price has slightly drifted down after the earnings report, and I decided to take a closer look at the conference call’s content. I’ve listened to it a few times now and tried to figure out the reasons for the share price drop (if any other than top and bottom line misses).
Oceans
- Strong sales to America, backed by several factors.
- Demand for sonars is very broad: from mapping solutions to autonomous vessels (surface and subsurface).
- AUV customers form a significant and growing part of the business. The long-term potential is huge, as only about 5-6% of the world’s waters have been explored. Unmanned vehicles are ideal for this task.
- Q3 margins showed slight softness (gross). Q3 was “only” 71%, when the normal range is 72-74%.
- Comparison is complicated by last year’s Q3 Olympic rental project, which raised the margin to 75%.
Connectivity
- The GNSS project’s design phase was slightly delayed, which slowed down the production ramp-up → some Q4 revenues will shift to Q1 2026.
- Reasons for the delay included the product’s complexity. The CEO mentioned in the call how engineers were challenged to develop something difficult so that competitors wouldn’t immediately follow suit. This was reportedly successful.
- In the long term, the driver is the 2G network shutdown in Europe (2027-2028): Former OBU (On-Board Unit) systems were on this network → need for new ones. When outlining the market size, there are about 6.5 million trucks in the main European market, with an additional 400,000 annually. Furthermore, the EU is expected to increase/expand road usage charges → need for OBUs for monitoring. Over the last 5 years, Norbit has supplied 2 million modules (of which GNSS is one).
PIR
- Most of the revenue comes from contract manufacturing (Norbit does not own the product but manufactures those designed by the customer).
- Norbit can choose its customers (cherry-picking), and it strategically seeks profitable and scalable partners.
- Primarily off-the-shelf components, while Norbit’s self-designed chips are produced for Connectivity.
- Core competence is clearly in module integration and system expertise, not chip design.
Partnerships and Capacity
- Three years ago, Norbit acquired a small factory in Trondheim that produced sonar components.
- Important for capacity, even though there is no direct need to own a comprehensive mechanical factory.
- The aim is to ensure supply reliability and scalability in the long term.
M&A Strategy
- Norbit seeks strategically suitable companies where cultural and business value-add criteria are met.
- High valuation multiples have not been the biggest obstacle, but rather strategic fit and genuine technological added value.
I still feel very comfortable as a Norbit owner! There were no changes to the guidance, so I’m a bit puzzled by the market’s reaction. The only thing that slightly bothers me is that orders from the security sector have grown massively. This means manna for the near future, but is this just a temporary situation in Europe that defense is being invested in? Hopefully not. 